Tuesday, May 18, 2004
On Supply and Demand:
If John F. “Lurch” Kerry were to suddenly disappear, I don’t know that I’d have any material left. Well, any easy material anyway.
Today, Lurch called for W to release an unspecified amount of crude oil from the Strategic Petroleum Reserves (SPR) in order to ease the gas price spike that currently has the average cost of a gallon of gas over the $2 mark across the country.
For the record, my family cars are a Ford Mustang (V6) and a Dodge Durango (V8). I could stand for gas prices to be brought down by, oh say 75 cents or so. The truth of the matter is, a release from the SPR isn’t going to make a damn bit of difference in the pump price. If you have any doubt, just ask Bill “der Schliekmeister” Clinton.
Despite the best efforts of left leaning politicians and economists, the laws of supply and demand are very tough to change. Supply and demand meet at an intersection called price. When you have a product (gasoline) for which demand is static (subtitle for Lurch – unchanging, or kind of like your forehead) and supply fluctuates, price will rise as supply is limited.
What influences supply? Many things. The most obvious right now is the fact that most of the worlds petroleum reserves sit under countries that are less than stable. Were it not for oil, the nations that make up OPEC would be little more than backwards nations stuck in the 12th century.
Outside of the glaring instability of the supplying nations, oil doesn’t come out of the ground in unleaded, premium, and super grades. Nor can you find 10w30, 10w40, or 20w50 weights coming from wells in Saudi Arabia. Oil comes from the ground looking like black sludge, otherwise known as crude oil. Crude oil must then be refined into its various products.
In order to refine crude oil into the above listed products, you need refineries. Now, ask yourself two questions:
1. Has the demand for gasoline and other petroleum based products increased over the past 30 years or so? Unless you are brain dead, the obvious answer is – YES!
2. Has the refining capacity within the United States increased at or near the same level as demand for the products produced by refineries?
You may need help with the answer to that one. The answer, by the way, is no. Actually, the last oil refinery built in the United States was opened in 1976. Refineries are abhorred by the militant environmentalist wacko movement, the NIMBY (Not In My Back Yard) crowd, and the BANANA (Build Absolutely Nothing Anywhere Near Anyone/thing) nutcases. Refineries are expensive to build, they belch out smoke and other fumes, and are generally an eyesore to the surrounding communities.
One more thing: They are a necessary part of the American Way of Life. As much as Lurch and Company may try, they cannot repeal the laws of demand. People will continue to drive gas powered cars until some other cheaper form of individual transportation takes its place.
Oil supply needs to be increased. That being said, so does refining capacity. Remember how I told you Clinton released a few million barrels of oil from the SPR the last time there was a gas price spike? Well, a little reported detail of that ill fated decision was the fact that, upon release of the oil, it had to be shipped to another country to be refined. That wasted time, and by the time said oil made it to market, it did have an effect on the already dropping gas prices – it brought them down another 2 cents or so.
Which of the two presidential candidates has a plan to deal with the reality of the energy situation in the US? Well, as you may or may not be aware, we do have some oil reserves of our own. They reside under the frozen tundra of Alaska. It would make sense to go after them, but the militant environmentalist whack jobs fear the damage it would do to some Caribou.
Lurch complains of our dependence of foreign sources of oil, but when given the opportunity he does nothing to reduce it. Supply and Demand are fickle masters.